What question did this study set out to answer?

To determine whether persistence in mutual fund performance is driven by managerial skill or can be explained by common return factors and investment expenses.

March 1, 1997The Journal of FinanceOpen Access

On Persistence in Mutual Fund Performance

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Authors

MCMark M. CarhartCapital University

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Implication

Empirical analysis reveals that stock return factors and expenses drive return persistence in equity mutual funds, indicating an absence of superior managerial skill.

Key Points

To determine whether persistence in mutual fund performance is driven by managerial skill or can be explained by common return factors and investment expenses.
Evaluated equity mutual fund return persistence using an extensive database free of survivor bias.
Controlled for common risk factors in stock returns, specifically the one-year momentum effect, along with fund operating and investment expenses.
Common stock return factors and fund expenses almost completely account for the observed persistence in both mean and risk-adjusted mutual fund returns.
The documented short-term 'hot hands' effect is primarily explained by the one-year stock momentum effect rather than intentional fund-level momentum strategies.
The only unexplained persistence is concentrated in sustained underperformance among the worst-performing mutual funds, with no evidence found for skilled or informed portfolio managers.

Cite This Study

Mark M. Carhart (1997) studied this question.

synapsesocial.com/papers/69c4bdd59f8ef871fa1c49b9 https://doi.org/10.1111/j.1540-6261.1997.tb03808.x

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Implication

Empirical analysis reveals that stock return factors and expenses drive return persistence in equity mutual funds, indicating an absence of superior managerial skill.

On Persistence in Mutual Fund Performance

Discussion

Member takes

Implication

Key Points

Cite This Study

On Persistence in Mutual Fund Performance

Discussion

Member takes

Implication

Key Points

Cite This Study

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